South Korea Orders Crypto Exchanges to Suspend Lending Services Amid Regulatory Review

The directive, issued Tuesday, takes effect immediately and will remain in place until the government finalizes a regulatory framework for digital asset lending.

Since July, Korean exchanges have aggressively expanded loan programs. Upbit launched a product allowing customers to borrow up to 80% of deposits in won or cryptocurrencies, using Bitcoin, XRP, and Tether (USDT) as collateral. Rival Bithumb went further, offering loans up to four times client holdings, with other platforms quickly following.

The FSC said these products operated in a legal gray area and carried significant risk. According to its data, 27,600 investors borrowed 1.5 trillion won ($1.1 billion) in just one month of a single program. About 13% of borrowers faced forced liquidation due to price swings. The regulator also noted that heavy selling linked to lending programs briefly disrupted stablecoin pricing, particularly USDT, on Korean exchanges.

The crackdown comes as the ruling party pushes the Digital Asset Basic Act, a bill that would eventually authorize lending services under strict guidelines. Until then, the FSC said, oversight is necessary.

“We will move swiftly to prepare guidelines to protect users and ensure stability in the market,”

the agency stated.

Market watchers have linked the suspension to broader global financial pressures. On August 4, Spencer Hakimian observed that South Korea’s current approach means the U.S. is effectively gaining exposure only through high-interest rate loans, comparing the dynamic to Japan.

South Korea confirms that the only “investment” the U.S. is getting out of them is in the form of high interest rate loans.

Just like Japan. pic.twitter.com/REDeuP8DvC

— Spencer Hakimian (@SpencerHakimian) August 4, 2025

Existing loans may still be repaid or extended, but no new borrowing is permitted. Noncompliant exchanges face on-site inspections, the FSC warned.

Notably, the FSC has introduced more demanding custody standards for licensed virtual asset trading platforms (VATPs), aimed at safeguarding client funds after a string of overseas hacks and security breaches exposed weaknesses in custody controls.